James Lough, the outside attorney the Centre City Development Corp. hired to investigate former President Nancy Graham’s potential conflicts of interest, is recommending that CCDC’s board halt a $409-million, 41-story skyscraper proposed at 7th Avenue and Market Street downtown because of Graham’s involvement.

Graham should not have participated in negotiations because she had a financial interest in one of the developers, The Related Cos., Lough writes in a report to be considered by the CCDC board Wednesday.

In a deposition last summer, Graham admitted under oath that she’d received almost $3 million from an affiliate of the company and that those payments continued through mid-2007. In that same time period, she was in negotiations about the 7th and Market project.

“Ms. Graham had a prohibited financial interest that would disqualify her from participating in the 7th & Market Project,” Lough’s report says. Referencing her involvement in negotiations, he continues: “This participation tainted the transaction to the level that the transaction should not continue.”

Because the negotiations are so complex, the attorney says the project should be halted altogether — instead of renegotiating any deal points that Graham may have affected.

“Also, it must be assumed that the Related Companies had knowledge of the financial transaction in Florida and the payments made to Ms. Graham while she was President of CCDC,” the report states. “These factors lead to the conclusion that the transaction should not be ratified.”

CCDC’s board will discuss the project at a special meeting at 8 a.m. Wednesday at 401 B Street, Suite 400.

ROB DAVIS

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